Health Savings Accounts: An Opportunity for Consumer Control

     The senior citizens she interviewed were unhappy with the idea of health savings accounts (HSAs), and Regan egged them on in their concerns instead of presenting the facts. Did he adequately address your concerns? Regan asked Carol Damis, who replied, Not at all. Bill Nickel, another senior citizen, said he was skeptical about health savings accounts because of the history.

     A year ago we were told that Social Security was in a crisis, Nickel said. A big part of it was the personal savings account. That went down the tubes and it took down the whole program with it because of suspicions people have. Regan encouraged him: And so your fear is that the health savings account is too similar? Nickel: Too similar. Its the same thing rehashed in a way. Im concerned.

     Of course, thats not the case. One of the main differences between HSAs and individual Social Security accounts is that HSAs actually exist. They were legislated in 2003 and made available in 2004. The insurance industry reported last week that enrollment in HSA-eligible plans had tripled to 3 million people in the last 10 months, according to the January 27 Los Angeles Times.

     The accounts allow workers to save and withdraw money for health expenses tax-free, up to the amount of a persons deductible. The companion insurance programs that people buy along with the accounts carry a deductible between $1,050 and $2,700 for individuals and $2,100 to $5,450 for families.

     Those figures worried Damis, the other senior citizen in Regans report, who went with the liberal party line that I understand that the deductible is quite high, and it would be out of reach of the middle class and lower middle class workers.

     Other media reports have made the same argument that only upper-income workers would be able to afford an HSA. The morning before the State of the Union address on January 31, Charles Gibson interviewed Sen. Ted Kennedy (D-Mass.) on ABCs Good Morning America. Gibson led Kennedy into a comment on HSAs, saying youve said that doesnt help the average worker, it just helps the rich who have money to set aside.

     But the Galen Institute cited an ehealthinsurance survey of online insurance buyers for the first half of 2005 revealing that More than 40% of HSA-eligible plan purchasers earned $50,000 or less annually. And media reports are failing to recognize the fact that the higher-deductible insurance programs come with lower premiums.


But It Costs More!
     The chief objection to HSAs has been the cost. In the January 26 New York Times, reporter Milt Freudenheim lamented: The critics say this approach is increasing many peoples out-of-pocket expenses and warn that it will make them less likely to seek routine preventive care that might stave off bigger problems down the road. Freudenheim then quoted one of those critics, who said that HSAs are designed to help employers unload their health care costs.

     That kind of logic has been the problem with the debate and specifically with media coverage, said Michael Cannon, director of health policy studies at the Cato Institute and author of Healthy Competition: Whats Holding Back Health Care and How to Free It.

     Media coverage perpetuates the myth that employers pay for health benefits, Cannon said, but in reality, workers pay for health benefits. Cannon noted that the benefits are simply another part of an employees payment package, so it all comes out of the employees wages. Whats actually happening is employers are shifting control, he said.

     HSAs give employees the choice to pay lower premiums while putting the extra money away for the day when theyll need it, said Daryl Richard, vice president of public affairs for Uniprise. Uniprise is the division of United Health Group that manages that companys consumer-driven health care initiatives. Richard said when people are considering HSAs, they must weigh high deductibles against lower premium costs.

     In the individual insurance market, our business has found that premiums for an HSA-based plan are typically 50 percent lower that traditional insurance, Richard said. Consumers can put the money theyre saving on lower premiums into their accounts to save toward their deductibles.

     The Cato Institutes Michael Cannon said one thing the media have communicated correctly is that people are afraid of $5,000 or even $1,000 insurance deductibles. Cannon said Congress needs to give people even more options and more control over their accounts, so that they can choose a lower deductible if they want to pay higher premiums.

HSAs Dont Discriminate; Competition Lowers Costs
     Traditional health insurance, purchased in bulk by large companies, squeezes small businessmen out of the benefits picture. R. Glenn Hubbard, author of Healthy, Wealthy and Wise and a visiting scholar at AEI, wrote on January 30 that HSAs should end this bias toward workers who are unionized and/or work for large corporations. Hubbard is dean of Columbia Business School and was chairman of the Council of Economic Advisers for two years of Bushs presidency.

     By creating a 100 percent, universal health deductibility at the consumer level, no matter where someone works or whether they work, our proposal would give everyone an incentive to demand total control over their health-care dollars, and take that control away from companies and unions, Hubbard wrote.

     Hubbard said competition in the health care market should prices, which would enable more uninsured people to afford insurance. Were HSAs to be used more commonly, the same dynamic that determines how most people spend their money trying to obtain the highest quality at the lowest price would finally come to American health care.

     And what about the uninsured? George Stephanopoulos of ABC News said after the presidents speech: For example, the Democrats and Republicans both applauded about the idea of affordable health insurance, getting costs under control. But they say that the president's idea, health savings accounts, is simply going to help those who have enough money already to pay for health insurance and won't help the 46 million or so Americans right now who don't have health insurance.

     Actually, Richard said, insurance industry reports indicate thus far that about a third of those purchasing an HSA were previously uninsured. Also, the Coalition for Affordable Health Care points out that U.S. Census Bureau figures on the uninsured measure those who were without insurance at any point in a given year. That doesnt necessarily mean all those people were uninsured for the duration of the year meaning the figure the media are repeating might not be accurate.


Resources:

National Center for Policy Analysis resources on consumer-driven health care The Galen Institutes market-based approach to health policy, including a Survey of the Literature on HSAs from different insurance companies Coalition for Affordable Health Coverage